It is part of eBay lore that the community of buyers and sellers is at the core of its success. "Our best ideas are the users' ideas," Whitman says. That was certainly true with cars. After the company noticed that users were listing cars in a "miscellaneous" section, it set up a category and, eventually, a separate site for cars. A Corvette is sold on eBay every three hours, and eBay buyers and sellers are on track to trade $1 billion in cars and car parts in 2001. Whitman, who recently bought a car - she won't say what kind - on eBay, boasts that her company has become the largest auto site on the Internet. "I think that was pretty surprising to us," says Whitman. "This was a Web site based on small shippable items. Cars are hardly small and hardly shippable."
Such success leaves eBay as the only Internet company to live up to its hype. On July 19, the company reported second-quarter profits of $24.6 million, more than triple those reported a year ago. While most companies were paring expectations, eBay raised its sales and profit outlook for the remainder of the year. Sales on Amazon, for instance, grew at a sluggish 16 percent for the same quarter, while overall e-commerce spending was up 15 percent, according to research firm BizRate. In contrast, gross merchandise sales, the total value of goods traded on eBay, surged 73 percent. At the current rate, nearly $9 billion in goods will be sold on eBay this year, about three times what Amazon expects in total sales. And because eBay doesn't own, store or ship the items its sellers trade, it enjoys hefty profit margins that are the envy of the industry.
EBay looks good not only when compared to the bludgeoned e-commerce sector but also when contrasted to the Internet industry as a whole. A year ago, the company was on the verge of being acquired by Yahoo, which was then worth $100 billion or so. The two companies' reversal of fortune was starkly apparent at last week's Industry Standard Internet Summit. Whitman was the only speaker whose presentation was interrupted by spontaneous and sustained applause from a crowd of Internet executives and investors with little reason to cheer these days. Following her speech, Whitman sat down to listen to Yahoo's new CEO, Terry Semel, and its co-founder Jerry Yang. There was no cheering from the audience - just scattered remarks amid onlookers that Yahoo's management team seems to lack a clear vision of how to lead the company out of its hole.
EBay's success relies heavily on two factors: It's been a profit machine from day one, and Whitman has kept her focus as she's invested steadily in the company's growth. In the past year, eBay has branched out from its sometimes cumbersome auction format. First, it acquired Half.com, a site where sellers list new and used items for a fixed price. Half.com has been an unqualified success, and eBay recently expanded it from its core of books and CDs to include computers, consumer electronics, sporting goods and other items.
On its auction site, eBay added a feature called "Buy It Now," which lets users acquire an item immediately, bypassing the lengthy auction process. Nearly 35 percent of all items listed on eBay now offer that option, speeding up the rate of trading on the site. And just a month ago, the company set up a program that allows businesses to set up storefronts on the site. Without a shred of promotion, the pilot program has attracted 18,000 businesses, well ahead of eBay's projection of 2,000.
EBay's international investments are paying off, too. The company recently acquired iBazar, a pioneering European trading site. Meanwhile its older German, Canadian and U.K. operations have grown briskly. EBay is now the No. 1 auction site in all of its 18 international markets except for Japan, where Yahoo has a sizable lead. "The magnitude of the challenge is large, but we have not, by any stretch of the imagination, given up on the [Japanese] market," Whitman says.
Buy It Now and Half.com represent 11 percent of eBay's revenues, and international operations account for 14 percent. Over time, Whitman expects that U.S. auctions, international sales and fixed-priced sales will each account for a third of eBay's business. But eBay has also racked up healthy revenues from side businesses, including its Billpoint payment system and services such as shipping and escrow. And its advertising business is perhaps the biggest surprise. EBay places ads on a small percentage of its pages through an alliance with AOL Time Warner. Yet advertising accounts for 10 percent of revenues, or about $18 million in the most recent quarter. That means eBay earns more in advertising than all but the biggest ad-supported Web sites. CBS Marketwatch.com, for instance, had $4.9 million in advertising revenue for the same period.
Success has put eBay in an unusual bind. The company now finds itself downplaying its potential to a Wall Street audience that dismisses that caution as conservative. Last September, Whitman promised that eBay would generate $3 billion in revenues with operating margins of 30 percent to 35 percent - roughly $1 billion in operating profits - by 2005. While the ambitious targets raised some eyebrows, most analysts now agree that eBay will meet those goals ahead of schedule. And many expect more. In particular, they believe profit margins can be even greater.
